Cable companies ramping up Web, HD, mobile service

Cable operators are riding high heading into this year's industry trade show, which kicks off this weekend.

After a dismal 2007 in which their shares took a big pounding, cable is seeing a rebound as Wall Street put more weight on their gains in high-speed Internet and digital voice rather than focusing mainly on their traditional video services.

Year-to-date, industry leader Comcast's shares are up 21% after falling 57% in 2007. The stock rose 8.6% the day that the Philadelphia-based company posted a 23% increase in first-quarter operating profit despite losing 57,000 basic video subscribers; its new Internet, phone and digital video subscribers has made up the difference, and more.

Time Warner Cable Inc. shares are up 10% so far this year, recovering from a 33% freefall last year, while Cablevision Systems's stock rose 2% after declining 14% in 2007.

For the most part, the slowing economy didn't seem to take much of a bite. Cable companies added more double- and triple-play customers — people who bought two or three bundled services at lower rates than they would have paid a la carte.

"In the face of an uncertain economy, we're growing," said Kyle McSlarrow, chief executive of the National Cable and Telecommunications Association, host of the 2008 Cable Show in New Orleans.

With features like unlimited domestic phone calls, cable companies have continued to take business away from rivals such as Verizon Communications, which lost 3 million residential lines for traditional phone service in the first quarter, with total home lines down 11% from 2007. Verizon added 263,000 net new FiOS TV and 262,000 FiOS Internet subscribers.

Peter Stern, chief strategy officer of Time Warner Cable, said the business has changed.

"If you looked at us about 10 to 12 years ago, 100% of our revenues were derived from analog video. If you look at the business today, almost 50% of our revenues are now derived from businesses beyond that of analog video," he told The Associated Press.

This year, cable hopes to continue building this diversity. They're adding more high-definition content, ramping up Internet speeds and working on standardizing systems where customers can use the same cable box or devices such as digital video recorders regardless of operator.

It helps that the largest operators recently pulled the plug on an uncompetitive cobranded cellphone venture with Sprint Nextel Corp. called Pivot.

Instead, Comcast, Time Warner and Bright House Networks have joined forces with Sprint, Clearwire Corp., Intel Corp. and Google Inc. to develop a national high-speed WiMax wireless network where cable will gain more control over the wireless product.

Time Warner, the nation's second largest cable operator, doesn't see an urgent need to add mobile Internet to its product line, Stern said. But the Sprint-Clearwire investment is a hedge against the possibility that wireless will become more important to cable's competitiveness.

Instead, Time Warner is hot on switched-digital technology, which sends viewers only the channels they choose to watch, to make space for more high-definition channels. Stern said nearly half of Time Warner's cable system uses switched digital and by year's end, it will be in a "significant majority" of divisions.

Cable operators will also move more analog channels to the digital tier this year to free up space, which could upset consumers on the basic tier because they'll have to upgrade to the digital package to watch the same shows.

By the end of the year, Time Warner plans to offer 100 HD channels in New York City, where Verizon has applied for approval to offer FiOS TV. FiOS is a threat to cable because its fiber-optic lines go all the way to the home and provide better picture quality and higher Internet speeds. In contrast, cable runs fiber lines to a neighborhood node, then uses coaxial cable into the home.

Comcast currently offers 500 high-definition movies, shows and channels and expects to hit over 1,000 by year's end. The cable operator is betting on volumes of HD content to keep phone and satellite TV companies from taking away video customers in markets where they compete.

The industry as a whole is ramping up its deployment of a software called Tru2way that would standardize its systems so consumers can use the same set-top box, DVR and other devices with any cable operator for two-way services — such the on-screen TV guide and video on demand.

Dr. Paul Liao, chief technology officer for Panasonic Corp. of North America, said the company is on track to unveil this fall a 42-inch and a 50-inch plasma HD-TV that are compatible with Tru2way.

He said Panasonic is developing a multi-room DVR that would let viewers, for example, pause a show on a DVR in the living room and continue watching it in a different room because the devices all communicate with each other. While other multi-room DVRs are available already, they largely won't work across different cable operators, and Panasonic's will, Liao said.

Cable companies also expect to pick up their Internet speeds, with Comcast deploying Docsis 3.0 technology in 20% of its market by year's end. That technology enables speeds over 100 megabits per second — compared to the more common 6 Mbps or higher for cable customers today. Faster speeds come in handy as consumers gravitate toward watching and sharing video over the Internet.

Time Warner said it's testing Docsis 3.0 in several market and plans deployment in 2009, though Stern said it appeals mainly to Internet "enthusiasts" and businesses.

Still, it gives cable a competitive edge.

"The whole game is about differentiation," said Vijay Jayant, an analyst with Lehman Bros.